IMPRUDENT POLICIES AND BAD GOVERNANCE BALLOONING IMPORT BILL
July 28 - Aug 03, 2008
The Trade Policy announced by the commerce minister missed the most important component, import target. The policy planners avoided even giving an indicative import target. Analysts believe that despite increase in import tariffs on cars, mobiles and luxury items in the current budget, pressure on the import front is likely to remain strong if the hike in the soft and hard commodity prices persists in the medium term.
In FY08, increase in food and fuel imports was responsible for 58% of the increase in overall imports. Analysts expect imports to grow by at least 10% this year compared to that of 31% during last year and expect to reach US$ 44 billion. This would translate into a trade deficit of US$ 21.5 billion.
As a result the balance of payment position will most likely worsen and require greater level of external debt financing. However, commodities are showing signs of loosing some steam, with oil prices down from their peak levels. This should provide some relief on the import side if this trend continues. However, trade deficit cannot be contained without developing alternate sources of energy, particularly the renewable.
Unfortunately, the government has not succeeded in containing oil import bill. On the contrary, quantity of import of furnace oil, motor gasoline and diesel is on the rise. The irony is that the country has been exporting molasses and failing in converting it into ethyl alcohol, to be added into motor gasoline. Brazil has been going this for decades, even when there was no compulsion for this. The reason was that the policy planners realized that massive production of molasses would help in bringing down cost of sugar production. As against this, historically capacity utilization of sugar industry in Pakistan has remained less than 50%, which is also responsible for higher cost of production and huge losses posted by the sugar mills.
One of the reasons for rising import bill of the country is growing import of fertilizer (urea and DAP), wheat, cotton and edible oil. Fertilizer import is result of a bad Fertilizer Policy, which failed in convincing the existing players to expand their capacities and sponsors to establish new facilities. On top of this the government is forced to pay billion of rupees as subsidy to Fauji Fertilizer Bin Qasim for its DAP plant. Interestingly no other industrial unit in the country has ever received this type of subsidy when working parameters changed. This was not enough as WAPDA continues to gas get supply from Mari Gas field, despite its dedication to the fertilizer industry in 2001.
Import of small generators is also on the rise because of extensive and intensive load shedding. Most of these generators are run on gasoline, diesel and gas. This not only increases cost of generation but also increases oil import bill. Hike in POL prices is the main reason for higher inflation in the country, which is also eroding competitiveness of the local manufacturers.
It is regrettable that about 35% of the total population of Pakistani lives below the poverty line and more and more people are being added to the list because of rising inflation and shrinking purchasing power. However, all sorts of packed food items are being imported for the class of consumers, which does not comprise of more than one percent of the total population.
The government as well as the cellular phone companies very proudly says that total number of cellular phone subscribers in the country exceeds 90 million or teledensity is about 50%. But does some one bothers to workout how much money is being wasted on import of cellular phones, construction of communication towers and advertising. Ironically, PTCL has also become victim of this psyche and its focus is shifting away from landlines to cellular phones. Its fully owned subsidiary, Ufone is spending billions of rupees on advertising.
According to some of the telecommunication sector experts, bulk of the population of the country is still deprived of this technology. Over seventy five percent of the cellular population is confined to less than half a dozen mega cities. At an average, individuals in cities like Karachi, Lahore and Islamabad have been issued up to six SIMs. Distribution of free SIMS has also increased the number of subscribers but the actual number of active SIMs is not more than half of total number of SIMs issued.
Similarly, import of all sorts of secondhand vehicles has not only eaten up foreign exchange but also has become permanent burden as parts worth billions of rupees have to be imported. The fallout of this policy is slowdown in sales of locally assembled cars. However, the worst hit is assemblers of buses and trucks. While hundreds and thousands of buses and trucks are rusting, it has become almost impossible for the local assemblers to sell their units in the local market.
For some time the government has been talking about import of CNG buses and in the latest Trade Policy import of CBUs from India has been permitted. One fails to understand the logic behind importing completely built buses because local assemblers are capable of delivering CNG buses. Import of CBUs under 'Yellow Cabs Scheme' had causes irreparable damage to the local assemblers and the legacy seems to continue. It will be better if import of all sorts of CBUs is stopped immediately, enough is enough.
Some of the analysts suggest that the government should impose quantitative restrictions on import to curb unnecessary import. They plead that Pakistan faces unusual conditions and under these circumstances the country has a right to impose such restrictions, despite being a signatory to the World Trade Organization.
Having said that it is necessary to emphasize those restrictions and embargoes are not the sustainable options. The best option will be to boost exports on war footings to facilitate imports. However, the measures should facilitate duty free import of raw materials and intermediate products and discourage import of finished products.
Pakistan has to bear the import burden of many products, which ultimately go to Afghanistan, India and Iran. These include wheat and its flour, edible oil and POL products. Boarder forces have not been able to check this illicit trade due to highly porous boarders. However, these agencies have to plug the boarders to curb smuggling.